All hotels, regardless of location, standard or size have late cancellations and no-shows. These tend to leave rooms empty and unsold, representing a financial loss at the end of the day. Let’s assume a hotel has, on average, three late cancellations and no-shows just before arrival. Multiply those three rooms with the amount of “sell-out” days per year and multiply that with your normally highest sold BAR rates – and you will get a good estimate of the amount of revenue you lose if you’re not applying a good overbooking strategy. That can turn out to be a pretty large number, especially if you also add it up for several hotels!
Don’t leave money on the table
High-demand days are back. Do you want to lose that money, or are you willing to rather take some risk and overbook? Simply put, a hotel that doesn’t apply overbooking is losing a big chunk of profitable revenue, especially with the highest BAR rates usually being sold last.
To manage expectations, overbooking successfully unfortunately means walking guests. There is no scenario in which you manage to sell out 100% on all your incremental demand days without having a single turned guest. However, you can manage the situation well and minimize the turned guests.
Have a strategy
If you walk 0 guests out of 10 sell-out days, probably the overbooking is not aggressive enough. If you are walking a guest on 8 out of 10 days, that’s probably too aggressive. If you walk a guest 2-3 days out of 10, you are in my experience doing it right.
To do this successfully, however, the key is to have a good walk-out strategy. That means staff being prepared and trained with an SOP and having a close collaboration with other hotels in the city to walk guests to. If you can turn guests within your hotel portfolio, that’s even better. Important of course is to always turn the guest to a hotel of an equal or even better standard. If done well, you might even make a small win on the price difference between what you pay for the room at the other hotel.
Base it on data
To know how much you can overbook, you will find the answer within your “cancellation” and “no-show ratios”. Best to use is a good RMS that can calculate this for you, but you can also quite accurately calculate it by looking at these mentioned ratios for each segment and considering the “time to arrival”. Other important KPIs to look at here will be the amount of “arrivals per 100 rooms”, the “LOS per arrival” and “early departures”.
Remember, bad data in is bad data out, so it all starts with good PMS data. Calculate your ratios, decide how much risk you want to take, build a good SOP for the team and with that you can make sure to not leave money on the table. Good luck and enjoy those extra sold high-priced profitable rooms!